H&R Block, tax preparers under fire

Consumer groups cite privacy breaches in IRS Free File

SAN FRANCISCO (CBS.MW) - Taxpayers who filed returns through the IRS Free File program may find their personal information used to sell them a host of other products.

Five consumer groups warned the Treasury Department this week that some commercial preparers in the Free File program are using confidential taxpayer information to market their financial products and services, including those that target high-risk borrowers.

Taxpayers access the Free File Alliance program through the IRS Web site, but they are taken to one of the agency's 17 tax software-company partners to complete the online filing, creating a conflict of interest, advocates said.

The letter to the Treasury cites H&R Block's Web site as an example of how vendors are using taxpayers' information to sell them not only tax-related products, but mortgages and high-cost refund anticipation loans as well, said Chi Chi Wu, a staff attorney at the National Consumer Law Center, which advocates for low-income Americans.

"We have a concern with a government-sponsored program where consumers are being cross-marketed for other products, including potentially sub-prime mortgages," Wu said.

H&R Block
HRB, -1.48%
owns both H&R Block Mortgage and Option One, one of the nation's largest sub-prime lenders. The company waives its $19.95 fee to offers Free File for clients with adjusted gross income less than $34,000.

H&R Block disputes the consumer groups' claims, spokesman Tom Linafelt said. "Clients have to provide advance permission before receiving any marketing material from us," he said. "Free File Alliance clients don't get a dumbed-down version or a harder sell than our paid clients. They get the same program."

But Block's opt-in feature is more like a "take it or leave it" deal where consumers have to jump through hoops to protect their privacy, Wu said. Taxpayers using the Free File program through H&R Block will find a provision that guards their information, but it's generally a Catch-22, she said.

"It's buried at the end of a long document and requires you to contact customer service to avoid cross-marketing," Wu said. "You agree to the licensing agreement and that allows them to cross-market, and you can't use the Web site unless you agree to the licensing agreement."

Allegations of mandatory consent to use the program are "erroneous," Linafelt said.

"We meet all the privacy requirements of the IRS," he said. "To say we require clients of the Free File Alliance to waive IRS privacy protections is just untrue."

Bigger picture issues

At issue is whether the IRS goes far enough in enforcing its own code's privacy protections, which are more rigorous than those set forth in the banking reform law known as the Graham-Leach-Bliley Act, said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

"It's very clear that the Treasury ought to investigate whether Block is violating the tax code's stringent requirement on tax-related personal information," he said.

But the bigger bone of contention appears to be why the IRS chose private-sector partners at the start. "Why can't consumers file their taxes for free on a government Web site? Why do they have to use vendors, who are going to cross-market overpriced products (filers) don't need and don't want?" Mierzwinski said.

Wu agreed: "The government either should have done it themselves or should have set restrictions so preparers couldn't do this."

The IRS declined to comment.

The letter -- sent by the U.S. Public Research Group, Consumer Federation of America, the National Consumer Law Center, Electronic Privacy Information Center and Consumers Union --states "this new level of marketing, based on information a taxpayer enters into his tax return using Free File, is extremely troubling and requires enforcement action by Treasury and the Internal Revenue Service." A copy of the letter is available on CFA's Web site.

More than 2 million taxpayers used Free File to prepare and electronically file their returns as of last week, surpassing expectations, the IRS said.

With three weeks until the April 15 deadline, just under half of U.S. taxpayers have yet to file their returns. The IRS received almost 70 million individual tax returns for the week ending March 21, slightly more than 50 percent of the projected 132 million individual returns to be filed this year.

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